Macias: Ending Radio's Free Ride

Music is a labor of love, but it’s also a business that works under the same market principles as any other part of our economy.

One of these is that markets only work if everyone plays by the same rules. Secret deals or collusion to fix prices are illegal. Another is the idea (under a federal law called the Robinson-Patman Act) that a business must sell to everyone at the same price. There are lots of exceptions to this “no discrimination” rule (volume discounts, happy hours, qualitative differences), but the basic idea is simple and important. Markets don’t work if competitors don’t have the same access to raw materials or products that they re-sell. A paper mill can’t try and suck up to Staples by charging it a lower price than OfficeMax. If that were allowed, OfficeMax could never compete.

But amazingly, in the music business, that’s what happens every day. When digital broadcasters like Pandora or SiriusXM play a song, they must pay a royalty to the musicians and labels that performed and recorded it. It’s only fair; radio makes money selling ads or subscriptions around that music, the folks who created it deserve just compensation. But when AM/FM broadcasts the exact same song, it pays the musicians and labels nothing. That is the definition of a broken market — one that is failing musicians and their labels while handicapping digital radio. It’s the kind of distortion that would violate the Robinson-Patman Act, except that Congress itself created this loophole in the first place!

Fighting to defend its special deal, broadcasters say that musicians should be thanking them for the airplay, since radio spins create new stars. Things have changed in a digital, social world, including how we find and share new music. Congressional auditors looked at this in 2010 and found the connection between radio play and album sales to be “unclear” at best.

AM/FM has submitted a resolution to Congress claiming that “performers benefit considerably from airplay and other over-the-air broadcasting” — but I can find many performers whose music is used to keep listeners engaged until the next commercial, while they themselves are destitute. It’s a pretty simple issue — if you are going to make money off someone else’s work, you should have the decency to pay them for it.

It’s not that AM/FM airplay has zero promotional value — it still reaches the biggest audiences, and any musician or label that claims not to care about cracking the Top 40 isn’t being straight. But this kind of promotion is just much less valuable today than it once was. That’s not just my opinion. Clear Channel CEO Bob Pittman agrees that “clearly [promotion] is not enough.” Other radio products like sports and talk also benefit from on-air promotion, but they still receive enormous licensing fees on top of that. A few years ago, Clear Channel gave Rush Limbaugh a $400 million contract. Meanwhile, it pays nothing for the vocal work of Beyoncé, Katy Perry and Kelly Clarkson combined.

It’s no surprise that digital broadcasters like Pandora have gotten frustrated by the discriminatory system in which they have to pay while broadcast gets a pass. But it’s disappointing that digital’s response has been to hire its own lobbyist army to try and win loophole protection of its own. The solution here isn’t an ugly race to the bottom that would level the playing field by slashing digital royalties (apparently Pandora’s Internet Radio bill would cut rates a whopping 85 percent). It’s to modernize the entire licensing system and create a fair, transparent market where everyone is paid for their work and the playing field is truly, finally level.

If the label and artist communities continue to have our rights ignored, and we can neither work out a comprehensive solution with our fellow stakeholders nor get relief from the Congress that is supposed to keep the playing field level for competitors in a free market, then I fear that our only recourse is to take our case to the courts and remind them of the tenets of the Robinson-Patman Act.

Musicians, labels, songwriters and broadcasters all have important interests at stake, and we know the health of each of these stakeholders are linked. We all love music and want the system to work and thrive. I’m optimistic (foolish?) enough to believe that, if we can just sit down and talk, a framework that is mutually beneficial to all can be crafted. It’s high time that we try.

David Macias is co-founder of Thirty Tigers, a Nashville record label and artist management company.